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“Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” ~Marc Andreesen, Inventor of the first browser, thought leader, and top VC.
Yes, each transaction is safe unless some get your private key. Each person on the system has a “digital signature” which is a very long and random serial number that no one can guess. The digital signature would be like using part of your email password as your unique signature.
I am really oversimplifying it here, but it is to give you a conceptual idea of how safe your transaction is. It’s done with complicated encrypted mathematics. Because it is from your private key, it acts like a fingerprint that is unique to you and no one else has. The signatures are unique to each transaction and can’t be reused on future transactions.
The reason why bitcoin grew so fast early is the blockchain technology was able to keep drug dealers and cybercriminals or anyone on the darknet anonymous and took the need for trust out of the equation. It made fraud an impossibility. “The Silk Road” was a “darknet” marketplace where you could buy anything from heroin to fake passports.
Without blockchain technology that darknet marketplace or cryptocurrency would be impossible. Because of it, early beginnings bitcoin got a bad name based on its early adopters.
However, it is unfair and hypocritical of someone to attach a negative connotation to the currency because someone used it for illegal gains. It is a fact that the dollar is the most widely used currency for just about all illegal transactions around the world.
Yet, we still use it. It’s a tool. So consider this idea when you ask if it is safe to use cryptocurrencies online, two unscrupulous people or organizations had a way to do business confident one couldn’t screw over the other using the Bitcoin technology.
They had millions and probably billions of dollars at stake so if they can trust cryptocurrencies technology, that means you probably can too! The secret sauce of Bitcoin and cryptocurrencies is the fact that fraud was proved to be an impossibility. All purchases on a cryptocurrency blockchain are irreversible. When you’re paid, you get paid.
Merchants will appreciate that chargebacks are eliminated. This is simply not something short term where your visitors may dispute or desire discounts, or employ dishonest sleight of hand.
Cryptocurrencies and the blockchain technology have been vetted or proven a million times over to be fraud-proof by people that made a living at defrauding others! The Criminals!
There are five components of using cryptocurrency to use online.
1.) Irreversible: After confirmation, a transaction can‘t be reversed by anyone. And that means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.
2.) Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters.
While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real-world identity of users with those addresses. Although depending on the cryptocurrency and blockchain, transactions can be traced back to certain public keys and signatures. This is so on the bitcoin blockchain as people have gotten savvier with the technology.
3.) Fast and global: Transactions are propagated nearly instantly in the network and are confirmed in a couple of minutes. This depends on the blockchain being used. For Bitcoin, it takes at least ten minutes for a transaction to be confirmed.
It doesn‘t matter if I send bitcoin to my neighbor or to someone on the other side of the world. Since they happen in a global network of computers they are completely indifferent to your physical location.
The Bitcoin blockchain confirmation of ten minutes is actually slow compared to many of the other blockchain ecosystems. As cryptocurrency becomes more widely adopted it could be a disadvantage for the Bitcoin ecosystem.
4.) Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers make it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox.
For a hacker using software to crack passwords and codes, it is only a matter of time, computer power, and the cost of electricity for them. Because of the level of cryptography, it would take a hacker literally trillions of years to crack cryptocurrency databases. What they usually target is the computers and passwords of individuals. Do not make your dog’s name “muffy” your password. It’s not secure.
5.) Permissionless: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper. This should get anyone that has been locked out of the traditional banking system excited!
Yes! In most countries worldwide, cryptocurrency is legal and taxable. This includes the United States. Russia is one of the few countries that has outlawed cryptocurrency. Funny thing is people in Russia still trade Bitcoins. After all, you don’t need permission.
However, the landscape changes pretty fast. Russia and other countries are considering adding a national cryptocurrency. Venezuela just added a national cryptocurrency backed by oil reserves. In the United States, you can now trade futures connected to Bitcoin. There is tax consideration that you must think about when getting involved in cryptocurrency.
“Today we practice a lot of authentication theatre. Your government-issued identity, for example, starts out in a database of a government agency. It’s then printed out in the form of a social security card, driver’s license, birth certificate, or passport…. $24 billion in identity theft occurs annually because corporations treat your social security number as a user name and a password.” Again without getting too technical understand that the system is secure and depending on the network private.
So recognize that all blockchain networks are not created equal when it comes to privacy. Many of the altcoins will compete for your dollars based on the amount of security and privacy they provide. We are all used to having accounts and passwords for the different services we use on the internet.
The Cryptocurrency industry is no different. They simply use very technical-sounding words to express the same ideas. Email is something you are familiar with. I will use email to explain how privacy works.
The analogy is close enough to give you a working knowledge but understands as you learn more you can get a little deeper into the technical aspects if you choose.
If you want to receive bitcoin you will need a unique personal address, just like an email. Let’s call it your bitcoin address. Just like your email address, anyone can see it and anyone can send bitcoins to it.
Now you decide you want to access your bitcoin address to see how many bitcoins you own. If you want to read your emails, you would go to your email programs like Gmail, or Outlook. The same type programs exist for bitcoin and the technical name for them is a bitcoin client. In the cryptocurrency world, they call this a wallet.
Think of a client like an online bank account. To access your bitcoins, you need to log into your client to access the information in your account. Again, a loose approximation. For your email client, you would enter your email address and your password. When accessing your bitcoin client or wallet you will need your bitcoin address, called a “public key” and your password called a “private key.” Allow me to restate this another way for clarities sake.
Your bitcoin “public key” is like your email address and the “private key” is like the password to your email account. It’s crucial that you keep the combination of your public key and private key safe. Exactly like you would guard your email address and password. Some people write it down on a piece of paper and hide it away and others will put it in an encrypted file on their computer.
There are also dedicated websites that will hold your public and private keys for you. If you ever lose your private key you will never be able to get into your wallet again. Unlike email clients no one, and I mean no one can reset your password or private key to your wallet. That currency locked in your bitcoin wallet is lost forever! Because of public and private key-based systems, there is great privacy within the cryptocurrency world. The mathematical algorithms have been described as unhackable.
Computer hackers can figure out passwords by using software that systematically tries combinations of letters and numbers until they find the right combinations. With enough computing power that can run day and night, it’s only a matter of time to crack ANY digital password.
The reason the cryptocurrency systems are unhackable is that computer scientist has determined and agree that the cryptocurrency mathematical keys are so complicated that it would take one hundred thousand supercomputers literally trillions of years to try every possible combination of numbers that would figure out a single message protected with 256-bit encryption (technical stuff like how the internet works).
The way cryptocurrencies work the records are encrypted with public and private keys over millions of nodes or computers. Because the information is decentralized no one computer has the entire message.
Thieves would have to hack into millions of computers and steal everyone’s private key all at once. The only way to get your information is for someone to know your specific private key. That means you need to keep it protected.
In the blockchain system, you can remain relatively anonymous because transactions and identity are separated. The payment goes one way and the identity stays behind.
Right now, in the banking system, when we make payments with credit cards over the internet or anywhere else your identity and sensitive personal information are attached to the transaction. Compared to the current centralized banking system you have better privacy in the world of cryptocurrency and blockchains.